Regulation A+

Definition

Regulation A+ is an exemption from the registration requirements of the Securities Act of 1933 that allows smaller companies to more easily raise capital from the public. It provides a streamlined process for companies to offer and sell securities without going through the full registration process required for larger public offerings.

5 Must Know Facts For Your Next Test

1. Regulation A+ allows companies to raise up to $75 million in a 12-month period through a public offering of securities.
2. Companies using Regulation A+ must still file an offering statement with the SEC, but the disclosure requirements are less stringent than a full registration statement.
3. Investors in a Regulation A+ offering do not need to be accredited, allowing non-accredited investors to participate.
4. Regulation A+ offerings are divided into two tiers, with Tier 1 allowing up to $20 million in raises and Tier 2 allowing up to $75 million.
5. Tier 2 offerings are subject to ongoing reporting requirements with the SEC, while Tier 1 offerings are exempt from such requirements.

Review Questions

• Explain how Regulation A+ differs from a traditional public offering in terms of the registration and disclosure requirements.
  • Regulation A+ provides a streamlined process for companies to offer and sell securities to the public, with less stringent registration and disclosure requirements compared to a traditional public offering. While companies using Regulation A+ must still file an offering statement with the SEC, the disclosure requirements are less extensive than the full registration statement needed for a larger public offering. This makes it easier for smaller companies to raise capital from the public.
• Describe the two tiers of Regulation A+ and how they differ in terms of the maximum raise amount and ongoing reporting requirements.
  • Regulation A+ offerings are divided into two tiers: Tier 1 and Tier 2. Tier 1 allows companies to raise up to $20 million in a 12-month period, while Tier 2 allows for raises up to $75 million. The key difference between the tiers is that Tier 2 offerings are subject to ongoing reporting requirements with the SEC, while Tier 1 offerings are exempt from such requirements. This means that companies using Tier 2 must continue to provide financial and other disclosures to the SEC and investors, whereas Tier 1 companies do not have this ongoing obligation.
• Analyze how Regulation A+ can be used by startups and small businesses to access public capital markets, and discuss the potential benefits and drawbacks of this approach compared to traditional financing options.
  • Regulation A+ provides an important alternative for startups and small businesses to raise capital from the public without going through the full registration process required for a traditional initial public offering (IPO). The lower disclosure requirements and ability to include non-accredited investors can make it more accessible for smaller companies to tap into public markets. This can be particularly beneficial for businesses that may not meet the stringent requirements for a full IPO or have difficulty securing venture capital or other private financing. However, the ongoing reporting requirements for Tier 2 offerings and the potential for less liquidity compared to a traditional IPO are potential drawbacks that companies must consider. Overall, Regulation A+ represents a balanced approach that aims to facilitate capital formation for smaller issuers while still providing investor protections.

Related terms

Crowdfunding:

The practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the internet.

Accredited Investor: An individual or institution that meets specific income or net worth requirements, allowing them to invest in securities that may not be registered with financial authorities.

Securities and Exchange Commission (SEC): The federal agency responsible for regulating the securities industry, including the registration and disclosure requirements for public offerings.